Bluebird News

Celebrate the festive season in a tax effective way

Feel confident this year in making tax effective gift giving and end of year Christmas party choices. Whilst you may want to show gratitude to someone you also want to make sure you are making the right choice for your business.

Spoiler alert: This gets a little complicated so if you don’t have time to read the detail. To avoid getting hit by FBT (Fringe Benefit Tax), keep your gifts to under $300per person and avoid entertainment gifts. For the Christmas party, either hold it on work premises and limit it to current employees, or hold it offsite and keep the costs down to less than $300 per person.

Christmas Gift Giving

The ATO allows a tax deduction for gifts to former and current clients if the gift is characterised as being made for the purpose of producing future assessable income (s8-1 ITAA 1997). We know, technical talk at this time of year can be daunting so we have created some guidelines to help you out.

Your Christmas list

Start with making two lists. One for external people and the other for people internal to the business. This will help identify the tax consequences within the two broad groups.

External includes: Clients/customers, suppliers, referral agents and other organisations. As a general rule think of who is likely to return additional income or refer work to you in selecting your list. 

Internal includes: Your team members, contractors, directors and closely related parties.

Note: For employees and their partners, non-entertainment gifts up to $300 are FBT-exempt and tax deductible; Over $300, you can still claim a deduction but FBT is payable.

FBT is not payable on your gifts to clients and suppliers; however non-entertainment gifts are tax deductible, entertainment gifts are non-deductible.

Christmas Budget

This may also be a good time to set an advertising budget and assess the value you get from the current advertising and promotional activities. We can help you set these budgets and targets to meet your business needs and grow your business. When gifting you need to keep the following in mind:

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• External gifts you can spend as much as you like .

• Internal gifts to staff need to be under $300.00 to avoid FBT. For gifts for your employees, if you spend under $300 it may fall under the minor FBT-exemption and be tax deductible. Be careful when combining the Christmas party and this benefit. It’s a good idea to check with us to confirm your specific circumstances.

Christmas Gifts

This is the fun part where you select your favourite gifts and for who. This year we have seen an increase in accessible gifts for isolating and catering. Our team loves the new plant gifting trend!

Gifting items such as wine, flowers, chocolates, hampers, gift vouchers, cake boxes and plants are the types that are most tax effective. Remember when gifting to staff the $300 amount discussed earlier.

If your business is registered for GST it is worth noting that there is generally no GST on gift cards.

Some things you need to be aware of is entertainment gifts such as tickets to sporting events, movie vouchers, spa vouchers and concert tickets. These types of gifts are entertainment in nature and can either trigger FBT or are non-deductible.

The Christmas Party 

There are three things you need to consider: who’s invited, where the party is held, and how much you spend.

Who is coming?

For your employees, the costs of food and drink are FBT-exempt when the party is on work premises. Off-premises, they’re exempt up to $300 per person.

If your employees’ partners are invited, the cost of showing them a good time is exempt – as long as it’s under $300 per person.

For your clients and suppliers, you don’t pay FBT and it’s not a tax-deductible expense.

Where is the party held?

If your party is on work premises on a normal working day and only current employees attend, the costs of food and drink are FBT-exempt, regardless of how much you spend. (If their partners attend, they’re exempt up to $300.)

If your party is held off-site at a restaurant or other venue, the cost is only FBT-exempt if you spend less than $300 per person – that goes for both employees and their partners.

How much are you spending?

If you spend less than $300 per person, this is considered a ‘minor benefit’, and exempt from FBT.

Over $300, the benefit is not exempt and is liable for FBT. That means it’s also tax deductible.

(The exception is a party held at the workplace for employees only – in this case you can spend as much as you like and it’s FBT-exempt.)

So these are our best festive-flavoured tax tips to help you have a merry and tax-wise Christmas party season. Enjoy!